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INTERVIEW THE MERCERS’ COMPANY

23 May 2015

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THE WEEK PRACTICE & LAW EG LIFETHE MARKET

23 May 2015

LIVERYThe Mercers’ Company uses its £1bn London property portfolio to make charitable grants that benefit a wide swathe of society. What’s next? Sophie Eastaugh finds out. Portrait by Jon Enoch

There are squatters in the Mercers’ Company’s latest Covent Garden estate development project.

“They wrote all sorts of anti-capitalist messages on the walls,” says property chairman Bill Scarborough. “When I told them what we actually do to help the homeless, they were rather embarrassed.”

And therein lies the problem with the property industry. Its reputation so often gets the best of it and, without a little education, an increasingly political population so often gets its opinion of the industry so wrong.

But for the Mercers’ Company, the premier livery company of the City of London, property is what feeds its main function: delivering on its philanthropic ambitions.

On one side, the 621-year-old institution is a property company with assets valued at £1bn. On the other, it is a charity that last year gave £9m

in donations while providing ongoing support to 17 schools and academies in London and the West Midlands, plus six almshouses for the elderly in London, Norfolk and Sussex.

These central tenets of business and charity are as old as the company itself. Granted its first charter by Richard II in 1394, the company has been closely associated with such well-known names as Dick Whittington, William Caxton, Sir Thomas Gresham and Sir Thomas More, many of whom made bequests of property to the company. One of the largest early bequests came from Lady Joan Bradbury, widow of a mercer and former lord mayor Thomas Bradbury, in 1530. She donated 10 acres and an orchard in the area now known as Long Acre in Covent Garden, WC2, to the company. Today the Mercers’ estate covers more than 40 acres across Covent Garden, the City and its various UK charity holdings.

Ten years ago, as the Mercers’ estate grew, it set up

Long Acre Estates to manage its empire, appointing property veterans Toby Shannon of the Howard de Walden Estate and Stuart Corbyn of Cadogan Estates as non-executive directors.

“It was quite evident that property was becoming a very important component of this company in terms of revenue production,” says Scarborough as he explains the reasoning behind the establishment of Long Acre Estates.

Since setting up the stand-alone company the group has teamed up with neighbouring landowner Shaftesbury to create the 280,000 sq ft St Martin’s Courtyard, a square of shops and restaurants off Long Acre that forms part of the company’s strategy to create a new parallel street to Long Acre, driving footfall to the area. Its value grew by 20% in the year ended September 2014, rising from £297m to £356m.

Those projects, plus opportunistic acquisitions

Bill Scarborough and Deborah Ounstead of the Mercers’ Company

DELIVERY

www.estatesgazette.com56 23 May 2015

THE MERCERS’ COMPANYINTERVIEW

“Property needs to be invested in to enable it to benefit the company’s philanthropy”

The Mercers’ Company is one of 110 livery companies of the City of London. The company and its associated charitable trusts make substantial grants to support education, general welfare, church and faith, and arts and heritage.

Its charitable work is funded principally through its property investments. Its main holdings are based around Covent Garden and the City. The Covent Garden portfolio comprises six buildings on the north side of Long Acre,

including shops, cultural spaces, offices and flats. Its City holdings include the iconic Royal Exchange, EC3, and Frederick’s Place, EC2.

In total, the company owns more than 40 acres of land across London and pockets of the UK with a total value of £1bn.

According to its latest published accounts for the year ended 31 December 2012, the company made a pretax profit of £14.8m off a turnover of £18m.

WHAT IS THE MERCERS’ COMPANY?

CV: DEBORAH OUNSTEAD CV: BILL SCARBOROUGH

and asset management opportunities after outsourcing its estate to Deloitte Real Estate, have enabled the Mercers’ Company to expand its asset value from £490m to £1bn over the past decade, recording a 22% uplift in value in the past year alone.

And that value is expected to continue to rise as the company upgrades and redevelops its buildings.

“We have become more transparent,” says Scarborough. “We operate much more like a property board. Before Long Acre Estates took over, it was clear that we were under-investing in the estate.”

Current projects include the 46,000 sq ft Mercer’s Yard development at 13-14 Langley Street and a 100,000 sq ft redevelopment of the grade II Frederick’s Place, EC2, within its other main landholding in the City. Plans for that scheme will be submitted next month.

Scarborough says the 10-year strategy for its Covent Garden estate is starting to come to fruition. Capital values in the area have risen by 20% pa over

the past two years and office rents that were previously around £40 per sq ft are now nearing £70 to £80 per sq ft.

“The future is really exciting for Covent Garden,” he adds. “Northwood Investors has bought 90 Long Acre, with aspirations of creating offices, residential and retail, and our attention is focused on what might be achievable on the block between Neal Street and Langley Street. We have looked at the opportunities, which are really interesting.”

And it is those opportunities that drive what the Mercers’ Company is really all about: giving.

“Property needs to be invested in to enable it to generate the sort of commercial returns that will enable it to benefit the company’s philanthropy in the long term,” says Deborah Ounstead, the first female master of the Mercers’. “There is, and continues to be, a programme of investment that will in due course generate increased rents

and it is from those that we will be able to do more.”

She adds: “The debate is to what extent do we use our resources to reinvest, as opposed to giving money away?

“The dichotomy for us is always this balancing act. Duty and perpetuity that would argue for reinvestment, as compared with doing our philanthropic stuff well.”

The Mercers’ Charitable Foundation is funded directly through the company’s property revenues and its grants benefit a wide range of causes, including education, welfare, the arts, heritage and religion. In 2013, it donated £155,000 to the London Schools Network and £15,000 to a youth employment and training programme.

A new area of focus for the Mercers’ is social enterprise. It provides three 4,000 sq ft

floors of unoccupied EC2 office space rent-free to Bathtub to Boardroom, a social enterprise that provides free office space to start-ups on the proviso that they create jobs. Since opening last March, 91 companies have moved in, creating 70 jobs.

One of the Mercers’ proudest associations is Gresham College, which has been giving free public lectures since 1597,

making it London’s oldest higher education institute. It is funded directly from the profits of the Royal Exchange, EC3, bequeathed to the Mercers’ and City of London Corporation by Thomas Gresham in the 1700s. The Gresham College app, which digitises lectures covering everything from poetry to politics, has been downloaded more than six million times.

“We respect the company’s philanthropic objectives, but

that doesn’t stop us taking an independent view,” says Scarborough. “The key thing for an estate like ours is reinvestment and maintenance of the buildings and structure of the estate, so that we don’t lose our revenue stream.”

For the next five to six years, the Mercers’ investment programme is focused on Covent Garden and Frederick’s Place, which together total some £90m. It feels no pressure to act quickly in the current market.

“One of the delights about a livery company is that it is about taking the long-term view,” says Ounstead. The Mercers’ had been trying to buy the offices above its hall on Ironmonger Lane, EC2, for the past 15 years. It finally succeeded two years ago, paying Hunter Property Fund Management £12.5m for the building, the cheapest price yet. “It pays to have a bit of patience from time to time,” says Scarborough with a smile.

“Now that we have this strong base of property revenue, it gives us the

opportunity to think on a broader footing,” he adds. “But we have to be careful – capital values are high because of very low yields. We are cautious of that. That is why we concentrate on our revenue. One of the most important things for that is identifying our risk profile on revenue. We can’t give away too much revenue and then find we can’t support it.

“Any property person is cautious in today’s market, where yields are at such low levels. We have seen it all before. We can to some degree ignore that as long as we continue to expand our revenue, as we are not responsible to shareholders. All we are responsible to is this company, in terms of ensuring we can maintain our level of giving.”

And, says Ounstead, ensuring that ability to give is paramount to the Mercers’ going forward.

“The new strategic plan is very clear,” she says, “that the company’s expenditure is in charitable giving.”

Position MasterMercer since 2002Career Awarded a CBE for services to the UK charitable sector last year, Ounstead has been a director of People for Action and chair of the Joseph Rowntree Foundation and Joseph Rowntree Housing Trust. She became master of the Mercers’ in 2014. It is a one-year appointment.

Position Chairman, Long Acre EstatesMercer since 1971Career Scarborough was an equity partner at Hillier Parker from 1994 to 1998, when it was taken over by CB Richard Ellis. He left the company (now known as CBRE) in 2004 to become a director at B2 Retail before becoming master of the Mercers’ in 2009.